Research report on phil. housing finance sector of Philippines

Institute of Business Science and Medical Arts, Inc.

In Depth Study of Housing Finance Sector

(Philippines)

In Partial Completion of the Requirements in Financial Management 1

School Year 2012 - 2013

Sumitted by Group 3: Submitted to:

Nelsie Grace D. Pineda Mrs. Katherine Cindy

Sajul

Honey Grace Mendoza Instructress

Marvin Mejico

INTRODUCTION

Home is a dream of a person that shows the quantity of efforts,

sacrifices, luxuries and above all gathering funds little by little to afford one’s

dream. Home is one of the things that everyone wants to own. Home is a

shelter to, person where he rests and feels comfortable. And in every nation,

every family dream of having their own house. The prevailing public

viewpoint is that every household must own a house, no matter how humble

it may be. Its opposite, renting a house is a less preferred, second best

situation. Home ownership is preferred because of the assurance of a place

to live in, its investment value, the status given by society to home

ownership and the uncertainties of its opposite - renting.

As in other Asian countries, housing situation in the Philippines is

characterized by the emergence of continuing demand for affordable

housing units in response of the increasing population and household size,

both in urban and rural areas. Affordability poses a challenge due to such

factors as low income levels, inadequate supply of desired units and limited

accessibility to housing finance packages.

Housing need for the period of 2007-2016 is estimated at 7,552,409

units, which is admittedly huge and far greater than what the government

can respond to by itself. This total consist of 3.9 million units comprising of

future housing needs resulting from population growth; plus some 1.3 million

in housing backlog, consisting of housing needs for the homeless (e.g. living

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in caves, under the bridge, in agricultural/industrial/ commercial buildings,

push carts, and streets) dilapidated or condemned housing units, marginal

housing and double-up households in acceptable housing units; and some

estimated allowances for inventory losses.

The rapid formation of new households, especially in urban areas, has

contributed to an acute demand for housing that has not been adequately

met by the supply side of the market. Over the last decade, the private

sector provided an annual average of 50,000 housing units, mostly for non-

poor families. The government-led shelter program provided on average only

about 277,404 “units of housing assistance”, from July 2010 to December

2011, many of which went to employed members of pension funds. The

demand-supply gap is mostly noticeable at the lower end of the housing

market as the poorer households failed to get access to decent housing. In

turn, the government has intervened in the housing market to make it more

responsive to demand, especially of the poor households. Government

intervention consists of regulatory, production and financing measures. To

provide shelter for the poor, the government has set aside P7 billion for the

housing sector, 23 percent higher than the 2011 appropriation of P5.7 billion.

In particular, the National Housing Authority will have P5.6 billion to resettle

families affected by calamities and living along high-risk, and to support

medium-rise housing and slum upgrading programs.

The housing situation in the Philippines faces new issues and

challenges. This paper will discuss the improvements made in the housing

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finance sector, the expected trends, and the areas of needed reform; the

housing needs of the public and the efforts of government in satisfying these

needs; resource mobilization and budgetary appropriations on housing

programs; as well as home lending programs of private and public agencies.

Furthermore, strategies on home development and urbanization are

discussed for effective implementation of housing programs as means of

poverty reduction and people empowerment.

The paper will briefly outline the context in which the housing finance

sector operates – the macro-economic environment, the overall financial

system and the housing market – before detailing the development,

structure, products and extend of both the mortgage and microfinance

sector for housing and the subsidies that apply to housing finance. It

concludes with a summary of main recommendations.

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REVIEW OF RELATED LITERATURE

Based on the study conducted by the World Bank on Housing Finance

of the Philippines on 1982, residential construction in the urban Philippines is

dominated by a few big developers who acquire land and prepare serviced

lots. Some have their own building contractors associated with them, but

nearly all will sell serviced lots to households for them to contract

(eventually) on their own for a home or sell to contractors for home building.

Consequently this industry has emerged into the most popular means of

providing affordable housing to Filipinos through real estate businesses.

Year before that, the government adopted a total system approach in

housing finance production and regulation. An interacting network of

Housing agencies with specific functions, namely funds generation,

mortgage purchase, mortgage guarantee, regulation and socialized housing

production was established and maintained. A housing finance system, with

the long term, objective of integrating savings mobilization, secondary

trading and credit insurance, was put into place. Unfortunately, the system

failed to take off beyond the primary mortgage market, and even the

mortgage origination set up with a single mortgage lending institution was

sub-optimal.

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Subsequent shifts in housing policies and programs were undertaken in

line with the United Nations Global Shelter Strategy. In 1986, a Revised

National Shelter Program was implemented with the primary object of

developing a self- sustaining and equitable housing delivery system through

increased private sector participation in both housing finance and

production. In addition to the set- up established in 1991, Executive Order

No. 90 provided a source of funds for housing finance through the country’s

social insurance and provident institutions: the Social Security System (SSS),

the Government Service Insurance System (GSIS) and the Home

Development Mutual Fund (HDMF).

Housing finance in the Philippines has been characterized by both

development period and mortgage financing being focused essentially on

two segments of the market, luxury housing and “mass housing “in the P

80,000 to P150, 000 ranges. This harmony of supplier and household

financing has made these the vibrant sectors of the housing market, but at

the cost of undernourishment elsewhere.

According to the study on the Dynamics on Housing Demand in the

Philippines: Income and lifecycle effects by Marife Ballesteros (2002), the

root of the housing shortage is the fact that the majority of households are

unable to pay for the cost of housing and land. The minimum housing cost of

P150 thousand per unit is 3.8 times the yearly wages of an unskilled laborer

in 1997. Likewise, a P250 thousand unit housing is 3.1 times the annual

income of an employee earning a median income of P6, 700 per month. This

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ratio is expected to be on the rise given the high rate of increase of housing

prices in the country. Average annual housing price appreciation in the

Philippines (i.e. Manila) is 32 percent per year, the highest among other

major cities in Asia (HABITAT and World Bank 1993). The table below

summarizes the results of the aforementioned study.

Table 1. Key Features of the Housing Market in the Philippines

Feature Underlying Causes

High unit housing cost relative to income

Low wages, high unemployment, Construction cost rising faster than wages, high rate of increase in urban land prices

high rate of increase in urban land prices

Scarcity due to limited infrastructure developments, scarcity due to institutional problems (e.g. property rights and bureaucratic bottlenecks), holding of lands due to low land and property tax

Lack of long term financing and unsustainable housing finance

Undeveloped secondary markets, graft and corruption, poor subsidy transfer mechanism

Undeveloped rental housing market for low income households

Government bias on home ownership, rent control law

Gilberto M. Llanto emphasizes two housing finance projects of the

government in his “Environment and Urbanization; Shelter finance strategies

for the poor: Philippines,2007”. First, The Community Mortgage Program,

which is designed to meet the need for shelter financing for the poor, is a

low-income home financing program that allows informal settlers to acquire

an undivided tract of land through a community mortgage. The CMP has two

kinds of project: on-site and off-site. On-site projects allow illegal settlers to

formalize claim to the land they occupy by buying it from the owner through

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a community mortgage loan. Off-site projects entail relocation to another

area. The main source of funding is government budgetary appropriation,

which is given to the Social Housing Finance Corporation (SHFC) to manage.

The loan packages are not only for lot acquisition but also for home

improvements and construction. The loan is amortized monthly over a 25-

year period. It is primarily informal settlers wanting to access lots and legal

titles who have used the CMP. During the period 1993–1998, the CMP

accounted for an estimated 60 per cent of “completed units of assistance”

targeted by the NSP. The CMP seems to be a successful housing program for

urban poor households in terms of reach and affordability. However, despite

its better than average collection rates, the CMP faces a sustainability

problem. Loan repayment rates are highly variable across community

associations. The government, which has problems with its huge fiscal

deficit, would be hard pressed to continue allocating a huge budgetary

appropriation annually to the CMP. Reasons for low repayment rates are as

follows:

1. In off-site projects, it was difficult to organize heterogeneous

households. In on-site projects, problems were related to group size

and maintenance of cohesion and cooperation among group

members;

2. weak monitoring systems;

3. cases where community association officers “temporarily borrowed”

the loan collections and these were never repaid;

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4. weak enforcement of the community associations’ internal rules;

5. the suitability of the location of CMP projects for human habitation

6. Recalcitrant households are bound to emerge who refuse to repay

the loans on various pretexts or excuses.

Next is the The Development of Poor Urban Communities Sector

Project (DPUCSP). DPUCSP is a decentralized shelter finance strategy for the

urban poor jointly developed by the government, the Development Bank of

the Philippines (DBP) and the Asian Development Bank. Intended for

implementation during the period 2003–2009, the project has three

components: site development, shelter finance and capability building of

agencies involved in the project. The main channels for retail loans to urban

poor households will be microfinance institutions such as microfinance rural

banks, NGOs and cooperatives, which will get funding from the DBP. There is

private sector participation in shelter financing, a decentralized shelter

delivery framework with the help of local government units, NGOs and other

community-based organizations and a break away from ill-targeted credit

subsidies. Research shows the positive effect of a community-based

perspective in World Bank-supported projects. The participation of

microfinance institutions enables the DPUCSP to draw on their strengths in

reaching the intended beneficiaries and efficiently collecting loan

repayments.

Llanto and Orbeta (“The State of Philippine Housing Programmes: A

Critical Look at How Philippine Housing Subsidies Work - 2001”) observed

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that of the government’s housing programs, it is only with the CMP and the

resettlement of informal settlers that there is a matching of intended and

actual beneficiaries of the subsidy. The Philippine experience with housing

subsidies showed that credit subsidies were captured by unintended

beneficiaries and caused distortions in the credit markets. The transfer of

credit subsidies takes place through banks or lending institutions that may

have biases against the intended beneficiaries, i.e. poor households. High

transaction costs, information asymmetry and a perception of high credit

risks prevent the poor from accessing the formal credit markets. Thus, the

non-poor tend to capture the subsidies.

The recent studies showed the efforts made by the government to

meet the inflated housing demands but such efforts are hampered by the

inaccessibility and non suitability for habitation of the programs, delinquent

payments and increasing urban prices. The existence of informal settlers in

Metro Manila proves the scenario. More programs are now being

implemented so as to reduce the housing gap of the country which will be

discussed later in this paper.

METHODOLOGY

Data Collection

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Informations on housing finance system of the Philippines were

collected through recent studies conducted by the World Bank, the PIDS and

other relevant researchers. The housing demand facts and figures were

gathered from the estimation of The Development of Shelter Monitoring and

Information System for year 2007-2016. Population figures and distribution

were extracted from the National Statistics Office online portal inclusive of

current and projected population. Cost of living and economic indicators

were collected through reliable online websites. Details on housing programs

and performance reports were obtained from different national agencies

such as HUDCC, NHA, HUGC, HGC NHMFC and Pag-ibig.

Statistical Treatment

After collecting the necessary data, a comparison of the past figures

with the current statistics were made to distinguish the boom in population

and the degree of developments on housing finance of the Philippines. The

differences between figures are determined and the rates of increase or

decrease are finally obtained.

In determining the housing need the following computation was

used:

Housing need = Housing needs (HN) for the Homeless+ HN for HHs in dilapidated/condemned HUs+ HN for HHs in marginal HUs+ HN for Doubled-up HHs in acceptable Hus+ Allowance for inventory losses+ Projected increase in household population

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Allowance for inventory losses• computed by multiplying the derived replacementrate (1.33%) to the number of households living in other acceptable HUs (O*)Definition of Terms

Other acceptable HUs (O*) = [HHs in HUs – (Homeless + HHs in Dilapidated/Condemned Units + Doubled-upHHs + HHs in HUs made up of predominantly or entirely makeshift/salvaged materials]

Discussion Procedure

The discussion of the topics are divided into chapters namely, the

macroeconomy, the housing sector, finance sector and government subsidy.

Each chapter is comprehensively discussed to fully illustrate the housing

situation in the Philippines. Statistical data which includes graphic

representation from relevant sources are provided therein. Furthermore, a

more comprehensive illustration of data is provided in the appendices for

additional reference.

I. The Macroeconomy

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Under this chapter, the economic situation of the Philippines is

presented, its economic growth, private consumption rate, labor force and

economic inflows brought about by OFW remittances and new investment.

The said economic indicators are linked to housing and its future

implications.

Economic Growth

In the second quarter of 2013, Philippines’ GDP expanded an annual

7.5 percent, from 7.7 percent in the previous quarter and 6.3 percent a year

earlier. Strong consumer and public spending, together with increasing

investment were enough to offset a drop in the external sector. As in

previous years, private consumption would provide the basis for growth.

Sustained increase in investment, particularly in construction, and higher

public spending, would provide an extra boost. Growth in exports would

hinge on the recovery of electronics exports and higher growth of non-

electronics. The economic growth projection of 6.4 percent in 2014 would

depend on the ability of the government to further increase infrastructure

spending and the private sector to increase investment spending.

Private Consumption

Private consumption grew by 6.1 percent and contributed 4.3

percentage points (ppt) to overall growth. Private construction also

performed well, growing by 8.6 percent. It contributed 0.5 ppt to GDP growth

as demand for residential and office space accelerated. Overseas workers’

remittances remained an important driver of private consumption, and

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lately, private investment in housing and real estate. According to the

Consumer Expectations Survey of the Bangko Sentral ng Pilipinas, around 12

percent of surveyed households in 2012 used remittances to buy real estate

properties.

Labor Force

The latest round of the Labor Force Survey (LFS) in January 2013

estimated that net job generation declined to 606,000 from 1.1 million a year

ago, or almost 50 percent lower. Agriculture actually shed 637,000 jobs,

while manufacturing, other industries, and services recorded net job creation

of 125,000, 268,000, and 851,000, respectively (Figure 1). Most workers in

the services sector are informally employed. In recent years, net job creation

has fallen short of the increase in the working age population (i.e., the

potential labor force) indicating that the economy remains hard pressed to

provide good jobs to majority of Filipinos (Figure 2).

Remittance growth of at least 5 percent will sustain the growth of

private consumption and to some extent household investment in housing

and real estate. However, there is growing concern about the effects of the

rapid capital inflow, which is fuelling the high growth of the asset and credit

markets (Table 2).

Fig. 1 Only about 600,000 jobs (on a net basis) were created in January 2013.

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Figure 2. Net job creation in January 2013 was significantly lower than the change in the potential labor force.

Table 2. Growth of Loans by Universal and Commercial Banks

2010 2011 2012

Total Loans

Gross of revenue repurchase(RRPs) arrangement 8.9 16.4 15.4

Net or RRPs arrangement 8.9 19.3 16.2

Real Estate Loans* 12.2 25.2 29.7

Credit card loans 4.2 9.0 13.4

Source: BSPNote:* includes loans in renting and other business activities sector

Price Indices

The Philippines’ annual headline inflation accelerated to 2.7 percent in

September from 2.1 percent in August. A higher annual increment in the

heavily-weighted food and non-alcoholic beverages index primarily brought

about the uptrend.  Faster annual increases in the indices of alcoholic

beverages and tobacco; housing, water, electricity, gas and other fuels; and

health were also noticed during the month. Inflation a year ago was 3.7

percent. Year-on-year inflation in the Philippines was higher in four

commodity groups namely: food and non-alcoholic beverages index (2.5%

from 1.8%); alcoholic beverages and tobacco index (31.2% from 31.0%);

housing, water, electricity, gas and other fuels index (1.1% from -0.3%); and

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health index (2.7% from 2.6%). The rest of the commodity groups have

either slower annual increments or retained their previous month’s annual

rate. Source: NSO

Index

Consumer Price Index (Excl.Rent):

41.03

Rent Index: 8.57

Groceries Index: 42.9

5

Restaurants Index: 23.1

8Consumer Price Plus Rent Index:

25.44

Local Purchasing Power: 29.4

8

Philippines Housing Index

Housing Index in Philippines decreased to 8839000 PHP THO in December

of 2012 from 9315000 PHP THO in November of 2012. Housing Index in

Philippines is reported by the NSO, Philippines. Philippines Housing Index

averaged 4746634.81 PHP THO from 1979 until 2012, reaching an all time

high of 80880327 PHP THO in April of 2000 and a record low of 22571 PHP

THO in June of 1979. In Philippines, Housing Index is measured by the value

of real estate transactions.

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II. The Housing Sector

The subject of this study is housing finance in the Philippines; however,

to provide the essential background against which to view the functions to

which the housing finance must serve, this chapter describes the current

housing finance situation in the country. In addition to dwelling conditions,

the extent of homeownership and the demand for housing, the discussion

also covers some selected features of the residential construction industry.

Finally, it should be noted that the focus of this chapter, and indeed of the

whole report, is on urban housing.

Population Boost

Between the years 1990 – 2000, population grew at a rate of 2.34%,

which slightly declined during 2000 – 2010 with a rate of 1.90%. Manila and

Quezon City maintains to be in the top for two decades. It is expected that

this ratio will continue to increase for the ensuing years. (Appendix A 1 and 2)

Informal Settlers

The housing problem is evident in the proliferation of slums and

informal settlements in the urban areas. Informal settlements have grown by

leaps and bounds. In Metro Manila, households in informal settlements

increased by more than 81 percent between 2000 and 2006. Recent

estimates show that more than a third of urban populations are slum

dwellers. In Metro Manila there were about 581,059 informal settlers (data

from HUDCC as of July 26, 2010). These communities are characterized by

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unsanitary conditions, congestion, and limited access to basic urban services

(e.g., health centers, schools, waste disposal, safe water supply). With rural

urban migration expected to continue, and six out of ten Filipinos living in

urban areas, addressing the housing problem must be embedded within a

larger urban development framework or environmental sustainability.

Resettlement and relocation programs have been implemented but have

attained limited success in providing employment, livelihood opportunities,

and adequate services to many of the relocates.

Table 3. Proportion of Households in Informal Settlements

2000 2006 Growth (%)

All households

Philippines 3.60 3.80 5.55

Urban 3.48 5.65 62.35

Metro Manila 5.30 9.60 81.13

Income Expenditure for Housing

Survey showed that each household spends Php 70,000 to 900,000 for

housing construction/rental, and maintenance and repair base on their

income. The amount spend on housing construction and rental of house and

lot varies but at a very minimal difference. This only suggests that the

allowance for rental is almost equal with building a house. Rationally, if

chances are provided, it is more practical to build a house rather than to

rent. Appendix B shows figures of this.

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Housing Demand

The National Urban Development and Housing Framework (NUDHF)

2009-

2016 finds the housing problem to be serious and is a largely urban

phenomenon. The magnitude of housing need, defined as the housing

backlog plus new households, is enormous and is estimated to reach about

5.8 million Housing units in 2016 In Metro Manila; the total backlog has been

projected to reach 496,928 housing units.

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With an enormous total housing need of 3.7 million as of 2010, a total

of

812,463 housing and shelter security units (i.e., house and/or lot) were

provided from 2004 to 2010. The National Urban Development and Housing

Framework (NUDHF) 2009 - 2016 indicate that Regions 3, 4B and NCR

account for about half of the total housing need.

Table 4. Total Housing Need by Region 2011 - 2016

Estimate of Housing Needs 2007-2016

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Accumulated Housing Needs (As of Jan 1, 2007) 1,273,395

ALLOWANCE FOR INVENTORY LOSSES (2007-2016) 2,369,025

NEW HOUSEHOLDS (2007-2016) 3,909,990

New HHs (likely to afford to own/rent acceptable HU) 3,624,999

New HHs (incremental to the accumulated needs) 284,991

TOTAL 7,552,409

Informal Residential Construction

Outside of Metro-Manila there are very few even middle-size

contractors. Small firms are the rule. "Foremen" who operate out of their

homes account for two-thirds or even more of the market. The small

contractors and individual skilled craftsmen serve the informal housing

market needs for major improvements to existing, often low-quality units. To

reduce out-of-pocket expenditures, it is common for members of the

household to work with the hired craftsmen or additionally to assemble other

family members and friends as well. Furthermore, the information flow on

locating and hiring such craftsmen appears to be very good.

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Dwelling Status

The 2010 Census of Population and Housing (2010 CPH), counted a

total of 19,715,695 occupied housing units in the Philippines as of May 1,

2010.  These are housing units with households and persons living in them at

the time of census enumeration.

Between 2000 and 2010, the number of

occupied housing units increased by

4,824,568 or 32.4 percent. Of the six

decennial censuses in the country, the

inventory of housing units between the

1980 CPH and 1990 CPH had the largest

increase of total occupied housing units

at about 40.9 percent.

Among the 17 regions, Region

IV-A had the most number of

occupied housing units, making up

14.1 percent of the total occupied

housing units at the national level. 

This was followed by the National

Capital Region with a 13.4 percent

share. Region VI had the most

number of occupied housing units in the Visayas while Region XI ranked first

in Mindanao.

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A total of 19,715,695 occupied housing units and 20,171,899

households in the Philippines in 2010.  These translate to a ratio of 102

households for every 100 occupied housing units, with an average of 4.7

persons per occupied housing unit.  In 2000, there were 103 households per

100 occupied housing units and 5.1 persons per occupied housing unit.

In 2010, single houses made up 86.5 percent of the total occupied

housing units in the country.  About 4.5 percent were of duplex type while

8.5 percent were multi-unit residential buildings/houses.  By comparison, in

2000, single houses accounted for 87.7 percent of the total occupied housing

units, 3.5 percent were duplex and 6.9 percent were multi-unit residential

buildings or houses.

In 2010, 45.7 percent of the occupied housing units in the country had

outer walls made of concrete/brick/stone, up from 30.8 percent in 2000.  The

proportion of occupied housing units with outer walls made of wood, on the

other hand, decreased from 22.7 percent in 2000 to 18.1 percent in 2010. 

Similarly, those with outer walls made of bamboo/sawali/cogon/nipa

decreased from 22.8 percent in 2000 to 18.1 percent in 2010.

Meanwhile, majority (78.1 percent) of the occupied housing units in

2010 had roofs made of galvanized iron/aluminum.  This is higher than the

proportion of 67.6 percent recorded in 2000.  The proportion of occupied

housing units with roofs made of cogon/nipa/anahaw, on the other hand,

declined from 22.3 percent in 2000 to 15.0 percent in 2010.

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By comparison, all regions in Luzon, except for Region IVB, were

reported as having the largest proportion of housing units with outer walls

made of concrete/brick/stone ranging from 40.2 percent to 70.8 percent.  In

contrast, four regions reported to have the largest proportion of occupied

housing units with outer walls made of bamboo/sawali/cogon/nipa.  These

are Region IVB with 42.2 percent, Region VI with 40.5, Region XII with 39.0

percent, and Region XI with 28.8 percent.  On the other hand, four regions

were reported as having the largest proportion of occupied housing units

with outer walls made of wood, namely, CARAGA with 55.5 percent, ARMM

with 49.6 percent, Region X with 41.1 percent, and Region IX with 39.0

percent.

Across the country, a proportion of about 54.5 percent to 89.4 percent

of the occupied housing units in each region had roofs made of galvanized

iron/aluminum.

Eight in every 10 occupied housing units (77.7 percent) in the country

in 2010 either did not need repair or needed a minor repair.  About 14.9

percent were reported as needing a major repair.  The rest of the occupied

housing units were categorized as follows:  unfinished construction (3.4

percent), under construction (1.2 percent), under renovation/being repaired

(0.9 percent), and dilapidated/condemned (0.4 percent).

Two fifths (40.1 percent) of the occupied housing units in the

Philippines were built within 10 years prior to the 2010 CPH, that is, in the

period 2001 to 2010. Eleven regions recorded proportion of occupied housing

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units built in the period 2001 to 2010 higher than the national figure of 40.1

percent. About 25.3 percent were built during the period 1991 to 2000.  The

remaining 34.6 percent were built more than 20 years prior to the 2010 CPH

with 14.9 percent during the period 1981 to 1990, 7.4 percent during the

period 1971 to 1980, and 6.5 percent in 1970 or earlier.

In 2010, 61.7 percent of the total 20,171,899 households in the

country owned or amortized the lots that they occupied.  The corresponding

figure in 2000 was 52.6 percent of the total 15,278,808

households. Moreover, 22.2 percent of the households occupied lots for free

but with consent of the owner. On the other hand, about 12.1 percent rented

the lots that they occupied. Only two regions had proportions higher than the

recorded national figure.  These are NCR (33.4 percent) and Region IVA (15.0

percent). Meanwhile, 2.4 percent occupied lots for free without consent of

the owner. (See Appendix B)

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III. Financial Sector

This chapter discusses the current situation of the financial sector in

the Philippines paying particular attention with the real estate business

funding. More specifically, the focus is on the lending status of real estate

firms and contributing factors to its prices.

The construction and real estate sectors contributed significantly to the

faster-than-expected expansion of the Philippine economy in 2012. The

central bank’s accommodating monetary policy stance, which has resulted in

the lowest interest rate regime, has encouraged lending to construction and

real estate activities. Construction and real estate grew by 14.4 and 18.9

percent, respectively, in 2012. Their average growth rates of 12.4 and 8.2

percent, respectively, from 2010 to 2012 were the highest since 1995-1997.

Bank lending to real estate grew by an average of 14 percent in the last

three years. Since 2010, strong capital inflows and domestic demand have

fueled the growth of the stock market. The main stock market index, along

with the property index, doubled in value in the last three years. And, since

2004, while real estate selling prices grew by up to 90 percent, rental values

on the average rose by around 60 percent. Some observers argue that the

current economic landscape exhibits some similarities to the two years

preceding the 1997 financial sector crisis. In the light of these trends, a

concern for the possible emergence of asset price bubbles is

understandable.

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The surge in construction and real estate activities reflects higher

demand for office spaces and residential condominiums, and house

and lots.

(Figure 2.1; refer to Box 2.1 for an overview of the Philippine real estate

market). Moreover, 2012 growth benefited from low base effect, because

between 2009 and 2011, real estate companies put on hold major

development projects in light of the volatile growth outlook brought about by

the European fiscal crisis and slowdown in other advanced economies. By Q4

2011, many Philippine real estate companies, encouraged by the positive

prospects for the Philippines, resumed construction of projects previously put

on hold. The country’s fast-growing business process outsourcing (BPO)

industry and robust overseas Filipino workers' (OFW) remittances are the

main sources of demand for office and residential properties (Figure 2.2). For

example, the luxury residential segment, which largely caters to the

expatriate market (e.g., BPO expatriates), expects to see an additional

10,600 units in 2013 from an annual average of 3,500 units in the last 5

years, while the Makati Central Business District (CBD) expects to see an

additional 336,000 square meters (m2) of office spaces in 2013 from an

annual average of about 178,000 m2 in the last 5 years (Figures 2.3 and 2.4).

Real estate price inflation in recent years is much lower than in the pre-1997 period.

Though rising, capital and rental values are still below their 1997 peaks,

as supply remains relatively strong. The average selling price for mid-range

residential condominiums grew by up to 90 percent since 2004 to around

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PHP100,000 per square meter (sqm). High-end units now sell at prices up to

PHP 200,000 per sqm, an increase of 50 percent.1 In contrast, rental values

have not increased by as much since 2005.

1 This refers to the average capital value for premium three-bedroom units in the Makati central business district. Source: Colliers International Philippines Research (2012)

They are currently lower relative to 1992-97, which saw a tripling of rental

rates. The rental price of Grade A office space in Metro Manila CBDs ranges

from about PHP 800 to 1,000 per sqm, still below the 1997 peak of PHP

1,200. On housing rental, the official statistics show that housing rental

inflation hovered at around 3 percent from 2007 through early 2013 from a

high of 18 percent in 1996 (Figure 2.5). Since 2008, the divergence between

rental and sale values is not growing as fast as one would expect if there was

a real estate bubble developing.2

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The inflation outlook for rental values is expected to be moderate

given the high supply of pipeline residential condominiums and office spaces.

At the same time, most banking sector indicators show significant

improvements from their levels in the 1990s, thanks to the prudent

banking policies put in place after the 1997 crisis. Lending to real estate is

capped by prudential measures such as limits to bank exposure to real

estate to at most 20 percent of total loan portfolio (TLP).3 Bank asset

indicators have also improved remarkably. Non-performing loans as a share

of banks’ TLP have gone down to 2 percent from 14 percent in 1996. Bank

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3 Source: BSP Circular No. 600 on regulatory framework governing bank real estate loans.

lending to real estate is still relatively modest considering that interest rates

are at historically low levels (e.g., bank lending rate of as low as 5 percent

from over 15 percent in 1997).

Low interest rates are driving real estate lending but leverage is

still low relative to 1997. In 2012, real estate loans (RELs) grew by around

30 percent and were equivalent to 4 percent of GDP, lower than 1997’s 60

percent growth and RELs equivalent to 6 percent of GDP. Thus far, the

balance sheets of top real estate companies remain healthy. The average

debt-to-equity ratio of the top six Philippine real estate companies weighted

by market capitalization was around 53 percent in 2012 (Table 2.1), lower

than the debt-to-equity ratios seen at the height of the Asian financial crisis

(i.e., 66 percent for the top real estate companies and 170 percent for the

Philippines’ top 1,000 non-financial corporations).4

4 World Bank staff estimates. Source: SEC 17-A forms, Business World top 1,000

corporations.

Risks arising from bank lending to real estate firms are lower today.

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This is because i) many weaker firms have been weeded out following

the 1997 financial crisis, ii) the balance sheets of the remaining firms are

stronger given lower leverage, iii) there has been a shift from lending against

specific projects to lending against developers’ balance sheets, and iv)

developers are making more prudent decisions and are adapting better to

difficult times by recalibrating the pace of real estate development and

postponing new project launches when the outlook turns negative, among

others. 5

Moreover, most real estate companies have adopted the practice of

pre-selling properties and starting construction only after reaching

60 percent in pre-sales to further reduce risks.

Through pre-selling, firms are protected from over committing

resources to a project without adequate revenue cover.6 This practice,

among others, is credited for having averted a hard landing in 2009.7 In the

case of office buildings, construction normally begins only after a portion of

the leasable area has been pre-committed to tenants. While the pre-

commitment requirement used to be 60 percent for office buildings, this has

gone down to around 30 percent in recent years due to the high demand and

faster turn-over time required by expanding BPO companies.

5 See Le Borgne, et. al. (2009) for more discussion 6 However, through pre-selling, a substantial portion of the risk is transferred from

developers to buyers and not necessarily reduced7 See Le Borgne, et. al. (2009) for more discussion

Page 32 of 57

Page 33 of 57

Box 1.1Overview of the Philippine Real Estate Market

The Philippine real estate market comprises five main segments: i)

residential (e.g., condominium units, and house and lots), ii) office

spaces, iii) shopping malls, iv) hotels, and v) industrial lots. The

residential segment accounts for the biggest share of total revenues at

around 55 percent (equivalent to 6.4 percent of GDP).8 Leasing of

shopping malls and office spaces comprise another 40 percent of the

property market (Box Figure 1.1).

Real estate development has expanded geographically. Private

building construction has become more dispersed with the development

of new projects outside Metro Manila such as the Provinces of Cavite and

Laguna, and Metro Cebu and Metro Davao. The concentration of

construction activity in Metro Manila has gone down to 40 percent from

almost 80 percent in pre-1997 and 60 percent prior to 2009 (Box Figure

1.2).

The demand for mid-range residential properties mostly comes from

residents and OFWs, and funded by savings, remittances, and stock

market earnings. Buyers comprise both local end-users and investors.

8 This is estimated as the weighted revenue shares per segment of the top five

Philippine real estate companies according to market capitalization. Source: SEC 17-A

reports of real estate companies.

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End-users include residents and OFWs who buy condominium units for

use as “vacation houses” (i.e., the unit is used when OFWs return to the

Philippines and are largely left vacant for the rest of the year). High-

end/luxury properties are largely purchased for investment, with the

purpose of renting out the unit to the expatriate market.

Source: Real estate companies’ SEC 17-A reports and PEU Author’s interviews with

Philippine property management and research firms, and real estate companies in

December 2011, and February and April 2013.

IV. Government Subsidy

Housing is households' largest and most widely owned asset. To

substantially improve the conditions of the targeted sectors, such as tl3e

poor's access to housing, the Philippine government has provided subsidies

that are expected to bring down housing costs. The subsidies in the housing

markets are meant to enable the majority of the population to afford housing

units that are made available to them at a lower cost.

Brief overview

During the 1970s and up to the mid-1980s, the government was

involved in the direct production and provision of housing and related

services and it imposed rent control in an attempt to make housing more

accessible to the low- and middle-income groups. It also initiated the

creation of a secondary mortgage system operated through the National

Home Mortgage Finance Corporation (NHMFC) that purchased the mortgages

of loan-originating financial institutions. The NHMFC drew funding from the

Home Development Mutual Fund (HDMF), paying 12.75 percent per annum.

Those funds were then lent to HDMF members at subsidized interest rates.

In 1987, to rationalize the housing sector, the Aquino government

created, through Executive Order No. 90, the Housing and Urban

Development Coordinating Council (HUDCC), the highest policymaking and

coordinating body for urban and housing development. It formulates policies

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and guidelines to accomplish the National Shelter Program, a scheme

intended to deal with the housing backlog. HUDCC coordinates, monitors and

exercises oversight functions over the activities of government agencies

such as the National Housing Authority (NHA), NHMFC, Home Insurance

Guaranty Corporation (HIGC)*, and the Housing and Land Use Regulatory

Board (HLRB). NHA is the sole government agency responsible for housing

production. The HDMF, Social Security System (SSS) and Government

Service insurance System (GSIS) provide funds to the NHMFC which is tasked

to administer the government's Unified Home Lending Program (UHLP). The

UHLP distinguishes "socialized" housing from "economic" housing and

maintains different financing approaches and regulations in each of these

categories. EO 90 enlists the support and cooperation of the private sector in

the production and financing of low-cost or "socialized" housing. The

government encourages both private builders and financial institutions to

cater to the lower segment of the housing market by providing them a

package of mostly financial incentives and subsidies. Under the Urban

Housing and Development Act of 1992 (RA 7279), a major piece of social

legislation under the Aquino administration, the government seeks to

undertake the following objectives:

(1)provide decent shelter to the poor;

*HIGC is now called the Home Guaranty Corporation (HGC) by virtue of Republic Act 8763 (March 7,

2000) that provided it a new mandate: to pursue the development

(2) develop a framework for the use of urban land;

(3) involve the community in shelter development and construction;

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(4) maximize local government participation in socialized housing; and

(5)employ the services of the private sector in socialized housing

programs.

A companion piece of legislation, the Local Government Code of 1991

(RA 7160), provides that local government units (LGUs) be jointly responsible

over the provision of socialized housing and regulation of shelter-related

activities.

The National Shelter Program

The National Shelter Program (NSP) is the government's

comprehensive strategy to address the country's housing problem. It rests

on three basic principles, namely:

(1) reliance on the initiative and capability of beneficiaries to solve

their housing problem with minimum assistance from the

government;

(2) the private sector as the principal player in providing decent and

affordable housing; and (3) the government as enabler, facilitator

and catalyst in the housing market, while focusing assistance to

families within the poverty line.

The NSP has four major programs:

(1) production of housing units,

(2) mortgage financing,

(3) developmental loans and

(4) community programs.

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These programs target either direct end-beneficiaries households or

private developers/private banks--the intermediary institutions used by the

government to direct assistance to beneficiaries.

Private homebuilders have reinforced the policy bias for

homeownership by declaring that the National Shelter Program (NSP) targets

can be attained given adequate funding from the government. This policy

has led government to try to raise as much funding as possible for home

ownership by households, especially the low income group and make it

available as cheaply as can be provided. Making cheap funds available

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became synonymous to providing interest subsidies to prospective

homeowners, and other types of subsidies to the housing sector in general.

Housing Finance System of the Government

The agencies involved in housing finance are the NHMFC, SSS, GSIS

and HDMF. These agencies provide mortgage loans to low- and middle-

income borrowers. The NHMFC provides takeout funding to public and

private institutions using funds provided by GSIS, SSS and HDMF. The NHMFC

uses those funds to take out mortgage loans originated by private

developers and private banks using the so called "formula lending"

approach. It is to be noted that funding doesn’t come from the General

Appropriation Act.

The government uses a combination of direct subsidies through

concessional interest rates, and indirect subsidies, e.g., tax breaks,

guarantee schemes, etc. Indirect subsidies also include periodic

recapitalization to strengthen, insolvent housing agencies.

Housing Subsidy Programs

The Home Development and Mutual Fund or Pag-IBIG Fund has several

programs to address the housing requirements not only of its members but

of private developers as well.  These include:

A. Credit Facility for Individual Members

This is a financing program for active Pag-IBIG members here and

abroad who have completed the necessary monthly contributions.  The

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housing loan may be used to purchase a fully developed lot or house and lot,

purchase of lot and construction of a residential unit thereon, construction or

completion of a house on a lot owned by the member, home improvement,

and refinancing of an existing mortgage with an institution acceptable to

Pag-IBIG.

B.  Facilities for Private Developers

The Pag-ibig Credit Facility for Developers aims to provide a liquidity

mechanism for private developers to enable them to continue developing

housing projects pending the take-out of delivered and complete housing

loan applications.  Under this facility are several schemes which the

developer may avail of such as:

Pag-IBIG Developmental Loan Program, which seeks to create

additional housing inventories through the provision of developmental

financing at easier terms and lower rates to developers or proponents

of housing projects.

Pag-IBIG City Program, which provides a ready inventory of completed

housing units in a project to be known as a Pag-IBIG City, which shall be

available for sale at more affordable prices to Pag-IBIG members.

This program also intends to lower the project financing costs for

housing development since HDMF shall provide a faster turnaround of the

developer’s investment, thereby increasing his capacity for housing

production. This shall redound to the benefit of Pag-IBIG members in terms of

lower priced housing packages.

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Takeout Mechanism under The Developers’ CTS/REM Scheme

In order to fast track the government’s housing program, Pag-IBIG

opened the takeout mechanism under the developers Contract To Sell/Real

Estate Mortgage (CTS/REM) mechanism by providing an express take-out

window for accredited developers who meet the standards set by Pag-IBIG

Fund for project development and house construction.

The program aims to enhance the asset quality of the Pag-IBIG

mortgage loan portfolio by instituting a credit risk-sharing mechanism with

housing developers.  It also defines the parameters in the allocation and

disbursement of funds allocated for housing, specifically for developer-

assisted member-loans.

Development of Medium/High-Rise Condominium Building (MHRB)

Projects in Metro Manila and Highly Urbanized Cities

This program aims to provide a ready inventory of condominium units

for sale at more affordable prices to eligible Pag-IBIG members in the Metro

Manila area and highly urbanized cities.  Through this program, Pag-IBIG

members who are working in the Metro Manila area and highly urbanized

cities will have an opportunity to acquire condominium units in the area,

thereby reducing transportation costs to and from their places of habitat.

Through a faster turnaround of their investments in the construction

and development of medium/high-rise condominium buildings in the Metro

Manila area and highly urbanized cities, this program will provide developers

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with a liquidity mechanism that will increase their capacity for housing

production and reduce project financing costs.

c. Developmental Housing Loan Program for Local Government

Units

This program is geared towards sustaining the capabilities of LGUs to

fast track the development and implementation of housing projects in their

respective localities, and to make housing accessible and affordable for its

employees and constituents.

d. Group Land Acquisition And Development (Glad) Program

The GLAD Program aims to provide financial assistance to organized

groups of formally employed Fund members for the acquisition and

development of raw land or partially developed land, which shall serve as the

site of their housing units.

2.  Abot-Kaya Pabahay Program

The Abot-Kaya Pabahay Fund was created pursuant to R.A. 6846 or the

Social Housing Support Fund Act, with the objectives of enhancing the

affordability of low-cost housing by low-income families and providing

developmental financing for low-cost housing projects thus eliminating risks

for the funding agencies involved in housing.

The program was devoted to provide amortization support,

expedite the development of land into suitable sites for social housing

by providing developmental financing to developers of low-cost

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housing projects, and establishes a strong guarantee system to ensure

viable cash flow for the funding agencies involved in housing.

The program is divided into three components namely:

Amortization Support – A qualified borrower shall be eligible to

apply for administration support.  Eligible borrowers with the

appropriate family income shall be entitled to a monthly amortization

support for the first five years of the loan amortization period.

Developmental Financing – Under this component, proponents of

low-cost housing projects shall be entitled to a developmental

financing loan not exceeding 80% of the entire project cost

Both the Amortization support and Developmental financing

components of the Abot Kaya pabahay Fund are administered by the

Socialized Housing Finance Corporation (SHFC).

Cash Flow Guarantee – This program, with Home Guarantee

Corporation (HGC) (www.hgc.gov.ph) as trustee and administrator,

seeks to eliminate credit risk for funders of socialized housing loans.

On December 1994, RA 6846 was amended by RA 7835 or the

Comprehensive Integrated Shelter Finance Act (CISFA), which increased the

AKPF fund from P2,500 million to P5,500 million and provided specific annual

allocations for 5 years.  The law further states that allocation for the housing

programs shall be appropriated annually for a period of five (5) years or until

such time the total fund requirement provided for in this Act shall be been

fully released specifically for the following programs:

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Funding for Housing Programs. The total allocation for housing

programs and the funds released to date are as follows:

 HOUSING PROGAM

 ALLOCATED(InMillion P)

 RELEASED(InMillion P)

 UNRELEASED(InMillion P) 

Resettlement Program 5,200.00 5,200.000 0.000Medium Rise Public and Private Housing Program, subsidy for land acquisition, construction

 3,000.00

 1,008.100

 1,991.900

Community Mortgage Program

12,780.00 6,575.940 6,204.060

Cost Recoverable Program

2,542.00 467.865 2,074.135

Local Housing Program 3,000.00 639.664 2,360.3

T  O  T  A  L 26,522.00

 13,891.569

 12,630.431

2.  Increase in Capitalization of Housing Corporations

The law also increased the capitalization of NHMFC and HGC, with the

corresponding releases to date as shown below:

CORPORATIONAMENDED CAPITALIZATION   (P M)

TOTAL RELEASED   (P M)

UNRELEASED(P M)

NHMFC 5,500.00 3,870.51 1,629.49HGC 2,500.00 2,500.00 0T  O  T  A  L 8,000.00 6,370.51             1,629.49

In addition to the original P500.00 M capital of NHMFC, the government

released P3,370.51 M in several tranches since 1995 for a total Paid In

Capital of P3,870.51 M.

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For HGC, its paid up capital prior to CISFA was only P622.35 M out of

the authorized P1,000 M.  After enactment of CISFA, the government

released a total of P1,877.65 M to complete the P2,500 M Capitalization.

3.  Increase in Abot-Kaya Pabahay Fund

 The CISFA law increased the funding for the Abot Kaya Pabahay

Program under R.A. 6846. The table on the allocation and releases for AKPF

is shown as follows:

ABOT-KAYA PABAHAY PROGRAM

ALLOCATION VERSUS RELEASES

(In Million Pesos)

 PROGRAM 

ORIGINALALLOCATION(R.A. 6846)

AMENDED ALLOCATION(CISFA LAW)

 RELEASED

UNRELEASED (BASED ON TOTAL ALLOCATION)

TOTAL 

 2,500.00

 5,500.00

 2,265.00

 3,235.00

 Abot Kaya Pabahay(NHMFC)

 1,500.00

 1,500.00

 1,140.00

 360.00

  Amortization Support

1,000.00 1,000.00 760.01 239.99

Development Loan

500.00 500.00 379.99 120.01

Cash Flow Guaranty System (HGC)

 1,000.00

 1,500.00

 1,035.00

 465.00

Interest Subsidy    

2,500.00 90.00

 2,410.00

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andLiquidity Support(NHMFC)

Housing Regulation

Housing and Land Use Regulatory Board

Compliance to 20% Balanced Housing Requirement

Section 18 of RA 7279 or the Urban Development and Housing Act of

1992 requires every developer of subdivision projects to develop an area for

socialized housing equivalent to at least twenty percent (20% of the total

subdivision area within the same city or municipality, whenever feasible or

total subdivision project cost at the option of the developer.

The Housing and Land Use Regulatory Board (HLURB) monitors the

compliance of the developers of subdivision projects to the twenty percent

(20%) balanced housing requirement under Republic Act 7279.

The required balanced housing development may also be complied

with by the developers in any of the following modes:

Development of new settlement;

Slum upgrading or renewal of areas for priority development either

through zonal improvement programs and slum improvement and

resettlement programs;

Joint venture projects with either the local government units or any of

the housing agencies;

Participation in the Community Mortgage Program (CMP);

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Purchase of housing bonds;

Accrediting housing projects engaged and developed by non-

governmental and non-profit organizations and foundations for the

underprivileged and homeless sector.

Registration and accreditation of housing project in government

resettlement areas, as an additional mode of compliance to balanced

housing. 

In support to the increase of production of housing units for the

underprivileged and homeless sector the HLURB initiated and proved the

following policy amendments:

a. Participation in any form in CMP projects as a mode of compliance to

Section 18 of RA 7279;

b. Accreditation of Gawad Kalinga (GK) projects and Habitat for

Humanity Philippines (HHP) projects as compliance to Section 18 of RA 7279;

c.  Exemption of GK projects and HHP projects from securing Licenses

to Sell provided that they are not for sale to the general public but rather to

be awarded to the beneficiaries;

For the year 2008, HLURB issued licenses to sell to a total of 2,067

projects or 220,756 units. Of this, 56 projects or 32,503 units were the

compliance of private developers to balanced housing requirement.    

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Flow of Funds for Government Housing Programs

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Housing Finance Issues

The lending activities of the insurance companies, like those of

commercial banks are confined to short end of the maturity spectrum and

support industrial and commercial activity. Lending to households is confined

to policy loans to individual customers and mortgage loans for very

expensive dwelling units. There has been over that period a gradual

reorientation of insurance company assets away from mortgages, real

property and stocks towards bonds and other investments. These other

investments have been predominantly short term in nature, usually money

market placements.

The loans and investments of the private non bank financial

intermediaries are however, dwarfed by those of SSS and GSIS. These two

public agencies are major institutional investors in intermediate-term

government securities and play an important role in housing finance system

as well.

In case of SSS there has been a relative shift of the portfolio toward

government securities. The reason for this reversal is two-fold. On the one

hand, rising interest rates have induced SSS to switch to government

securities; on the other hand, the mortgage amount ceiling imposed by SSS

has made these loans less useful as house prices have escalated and the

demand for mortgage loans has fallen off.

Notwithstanding the current strong underlying demand and

improved fundamentals of Philippine real estate companies,

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vulnerabilities in the sector remain and may build up if key sources

of risks are not managed.

First, as a substantial portion of residential buyers are OFWs,

residential sales are exposed to adverse shocks to the global economy.

Industry anecdotes suggest a significant number of defaults since 2009 by

OFWs who are unable to pay their mortgages.9

Second, the low interest rate environment may lead to moral

hazards such as relaxing credit standards and documentary

requirements for household real estate loans.

For instance, some banks have raised the loan-to-value ratio9 from 70

to 80 percent (and as high as 90 percent according to industry analysts) and

have waived several prudential requirements, such as proof of income, to

generate more sales. This latter practice appears to be more prominent

among OFWs who are unable to show proof of income, but are nevertheless

granted loans if they are able to pay the 20 percent down payment.

Moreover, anecdotal evidence suggests that some developers have

increasingly used their balance sheets to offer in-house financing (i.e., a form

of shadow banking), as opposed to bank financing.10 This added exposure of

developers’ balance sheets has yet to be properly recorded and monitored.

Overall, the unknown magnitude of shadow banking by real estate

developers with possibly weaker credit standards is not reassuring and can

be a significant source of risk.

9 Balloon payments have been attributed to defaults as some buyers are unaware of large lump-sum payments

required after several months of equal installment payment.

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10 The loan-to-value ratio refers to the portion of the total contract price of the property that can be financed by the

bank. A very high loan-to-value ratio has the effect of reducing buffers against declines in property prices in the

event of defaults.

Finally, the projected end-user demand for condominiums,

especially at the mid-range to high-end, may be overstated,

especially since only about 10 percent of the total population (20 percent in

Metro Manila) is considered to be middle class and up.54 According to

industry observers, some firms are reported to continue building projects to

preserve their market shares even if end-user demand is slowing down. If

this is any indicator, some investor-buyers are having a hard time renting-

out their units at prices commensurate to their investment. This is

particularly true in areas with an oversupply of projects. Lower rental turnout

may adversely affect investor-buyers who availed of bank or in-house

financing.

To mitigate risks, the BSP has tightened the coverage of bank

exposure to real estate. In August 2012, BSP lifted all exemptions in the

computation of bank exposure to real estate and expanded them to cover

funds channeled into securities of property firms. The new BSP guidelines

provide a more comprehensive measure of banks’ 20 percent cap on real

estate exposure. Previously excluded items which are now included in the

computation are i) mortgage loans, ii) socialized and low cost housing loans,

iii) loans guaranteed by the Home Guarantee Corporation (HGC), and iv)

investments in debt and equity securities issued by real estate companies.

Moreover, banks are now also required to provide additional details on their

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exposure to the real estate sector such as i) investments in debt and equity

securities that will be used to fund property developments, as well as, loans

extended to property developers, and ii) ancillary services relating to the

construction and development of real estate projects such as buying, selling,

renting, and managing real estate properties.

In conclusion, the Philippine real estate sector is currently enjoying

high rates of growth, driven by low interest rates, robust OFW

remittances, and the fast-growing BPO sector. It also benefits from

improved bank and real estate sector fundamentals as a result of past and

ongoing reforms. The conservative and pre-emptive stance of the BSP and

major market players, which continues today, has helped to put in place

buffers against major shocks. Overall, the sector remains in good health,

thanks to measures initiated by both the private sector and the government

to address past issues.

However, the sources of growth can also become the sources of

risk. A real estate sector driven by OFW sales and BPO leasing is vulnerable

to shocks in the global economy. The low interest rate regime is also a

source of risk. As lenders and developers compete for higher yields, lending

requirements may be relaxed beyond prudent levels.

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Concluding Statements

Housing demand in the Philippines has been mainly dictated by

housing affordability, which refers not only to a household’s ability to pay but

also to the price of housing in the market and the financing schemes

available. Housing affordability is low in the country. This is attributed to

several factors: first, the ratio of unit housing cost to income is rapidly rising.

Housing price appreciation is highest in the Philippines among countries in

Asia and this is mainly due to rising land prices. Second, there are few low-

cost alternatives to homeownership in the formal market. Many households

cannot afford homeownership. Only about 50 percent of households in the

country can afford to buy a home in the formal market. The situation can be

worse in some areas. Moreover, the rental market, specifically low cost rental

housing, is limited, thus, households engage in various informal housing

arrangements (e.g. rent-free occupation, squatting) and multi-occupancy

dwelling has become common. Third, innovative housing finance is limited

and the microfinance schemes available suffer from liquidity problems and

bureaucratic delays.

The above conditions are reflected in the consumption pattern of

households. The path toward acceptable housing has been very slow and

housing adjustments have been confined to home improvements with

minimal changes on tenure. Government has to address the problems of

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housing in a broader context. The issues are not only confined in providing

households income transfers through subsidies or in giving access to housing

and security of tenure but also in looking at the larger issue of urban

development. Within the households’ microenvironment, government may

consider the development of the rental housing market, the provision of

alternative financing schemes that takes into account the households’

capacity to pay (e.g. rent to own schemes, “balloon” payment on

amortization, microfinance, etc.), or encourage the development of “cheap”

housing technologies. These actions should, however, be supported by ways

to effectively reduce the high cost of housing in the country. Such move calls

for institutional strengthening specifically in the areas of land management

and administration as well as in local governance.

Moreover, to substantially overcome the backlog on housing

schemes, the following recommendations are provided;

carefully targeted to the most needy;

transparent to the public and policy makers;

funded from budgetary appropriation because the provision of

low cost housing is a public sector policy goal;

avoiding as much as possible distortions in the credit markets;

creating incentives for greater participation by the private sector,

especially the banks, and

encouraging risk sharing on the part of the borrower,

government and the private sector finance

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A summary of comparison in mode of acquiring a house is also

provided to give guidance to individuals planning to build their houses. (See

Appendix E)

Page 56 of 57

Referrences

National Statistics Office

Shelter finance strategies for the poor: Philippines Environment

and Urbanization 2007 19: 409, Gilberto M. Llanto,

DOI:10.1177/0956247807082821

http//: Cost of Living in Philippines. Prices in Philippines

The Dynamics of Housing Demand in the Philippines: Income

and Lifecycle Effects, Marife M. Ballesteros, PIDS Research Paper

Series No. 2002-01

A Study of Housing Subsidies in the Philippines ;Gilberto M.

Llanto, Aniceto C. Orbeta Jr., Ma. Teresa C. Sanchez and Marie

Christine G. Tang; PIDS DISCUSSION PAPER SERIES NO. 98-42

HOUSING & URBAN DEVELOPMENT COORDINATING COUNCIL

PHILIPPINE ECONOMIC UPDATE :ACCELERATING REFORMS TO

MEET THE JOBS CHALLENGE; May 2013 ;Poverty Reduction and

Economic Management Unit East Asia and Pacific Region

Housing Need; National Framework, Operationalization and

Estimation;Development of Information System

Pampanga Real Estate TV | Pampanga Real Estate Trend, Guide and

Review.All Rights Reserved. CRB Benedict Baluyut, RMT

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